Banking And Securities Business, "joint Operation" And "separate Operation"

The bank acts as a financial intermediary. Both the general public and the enterprises have a close connection with it, and any behaviour of the bank can produce some effects upon the society. Therefore, to protect the safety and soundness of its banking system is always the primary objective of most countries. In addition, to provide a competitive environment and to realize some public policies are also the factors that would be considered. Under most banking laws, there is an important regulation about whether or not the commercial bank should be allowed to conduct the securities business. Someone say "Yes", while the others say "No". Consequently, these tow different answers introduce tow different banking systems: the universal banking system or the system separating the commercial banking and the investment banking. Under the universal banking system, the banks can engage in a complete range of business, not only the traditional banking businesses, such as deposit taking and commercial loan lending, but the investment banking businesses as well, like securities underwriting. Germany is considered to be a classic universal banking country. According to "the German Banking Act", a German bank can conduct deposit business, credit business, discount business, securities business, custody business, investment business, and so on. These German universal banks originated in response to the high capital requirements made by the industrialization in the mid of 19th. Not only have they ensured the industrial revolution can be carried out smoothly, but they have contributed greatly to the German "economic miracle" after its defeat in the World War. On the contrary, the other banking system is such that commercial banks are prohibited from the investment banking; that is, there is a separation between the commercial banking and the investment banking. Due to the Glass-Steagall Act of 1933, U.S. has been the prototype of this system until last year. During the banking crisis from the late 1920's to the early 1930's, there were thousands of banks closing their doors in the U.S.. Most people in the Congress attributed this unprecedented disaster to the commercial banks' speculative behaviour in the Wall Street, and therefore, the Glass- Steagall Act was passed quickly to prohibit the national banks from engaging in the securities business, and to prohibit any affiliation between the banks and the securities firms. In this way, the Congress believes that the speculative assets of the bank can be excluded, the conflicts of interests can be eliminated, and the public confidence can be restored. For years, people are always arguing which one is better, the universal system or the system separating the commercial banking from the investment banking. Generally speaking, the former has the following advantages: the realization of the economies of scale and scope; the reduction of the informational asymmetry; the diversification of operation risks. Admittedly, it also has some shortcomings, such as, it would provide more chances and make more easier to the occurrence of conflicts of interests; it could make the banks too strong to keep a favourable environment of the fair competition; and what's more, some researches have suggested that in a "universal banking" country, its financial markets have been poorly developed and less sophisticated, and financial innovation there has been often discouraged. While the latter is based on the analysis of risks. It makes the banks walk away from the unpredictable securities markets, which would effectively avoid the chances of conflicts of interests, and therefore, would guarantee the safety and soundness of the banks. However, under this system, the banks can hardly realize the economies of scale and scope, and have little room to diversify their risks. All these would produce some negative effects on the efficiency and safety of the banks. In this way, it's very hard to decide which one is better. Even, there is no absolute answer to this question. Instead, according to...